Balancing partner preferences for logistics costs and carbon footprint in a horizontal cooperation

Horizontal cooperation in logistics has gathered momentum in the last decade as a way to reach economic as well as environmental benefits. In the literature, these benefits are most often assessed through aggregation of demand and supply chain optimization of the partnership as a whole. However, such an approach ignores the individual preferences of the participating companies and forces them to agree on a unique coalition objective. Companies with different (potentially conflicting) preferences could improve their individual outcome by diverging from this joint solution. To account for companies preferences, we propose an optimization framework that integrates the individual partners’ interests directly in a cooperative model. The partners specify their preferences regarding the decrease of logistical costs versus reduced CO2 emissions. Doing so, all stakeholders are more likely to accept the solution, and the long-term viability of the collaboration is improved. First, we formulate a multi-objective, multi-partner location-inventory model. Second, we distinguish two approaches for solving it, each focusing primarily on one of these two dimensions. The result is a set of Pareto-optimal solutions that support the decision and negotiation process. Third, we propose and compare three different approaches to construct a unique solution which is fair and efficient for the coalition. Extensive numerical results not only confirm the potential of collaboration but, more importantly, also reveal valuable managerial insights on the effect of dissimilarities between partners with respect to size, geographical overlap and operational preferences.